Journal of Forest Economics > Vol 24 > Issue 1

Faustmann vs. real options theory – An experimental investigation of foresters’ harvesting decisions

Philipp A. Sauter, Faculty of Agricultural Sciences, Department for Agricultural Economics and Rural Development, Georg-August-Universität Göttingen, Germany, philipp.sauter@agr.uni-goettingen.de Oliver Mußhoff, Faculty of Agricultural Sciences, Department for Agricultural Economics and Rural Development, Georg-August-Universität Göttingen, Germany, Bernhard Möhring, Faculty of Forest Sciences and Forest Ecology, Department of Forest Economics and Forest Management, Georg-August-Universität Göttingen, Germany, Stefan Wilhelm, Faculty of Forest Sciences and Forest Ecology, Department of Forest Economics and Forest Management, Georg-August-Universität Göttingen, Germany,
 
Suggested Citation
Philipp A. Sauter, Oliver Mußhoff, Bernhard Möhring and Stefan Wilhelm (2016), "Faustmann vs. real options theory – An experimental investigation of foresters’ harvesting decisions", Journal of Forest Economics: Vol. 24: No. 1, pp 1-20. http://dx.doi.org/10.1016/j.jfe.2016.01.004

Published: 0/8/2016
© 0 2016 Philipp A. Sauter, Oliver Mußhoff, Bernhard Möhring, Stefan Wilhelm
 
Subjects
 
Keywords
JEL Codes:Q23C93D22Q28
Experimental economicsForest harvesting decisionReal options approachFaustmann–Pressler–Ohlin theoremRisk attitudeForest managementPolicy support
 

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In this article:
Introduction
Derivation of hypotheses
Experimental design
Data analysis
Results
Discussion
Conclusion

Abstract

Among the most complex decisions in forestry is the decision of when to harvest a stand. Many investment theories have been established and adjusted to maximize profit, yet limited knowledge is available regarding the predictive power of theories. Understanding foresters’ harvesting behavior, however, is important for forest management and policy support. Thus, the question arises as to what extent risky harvesting decisions comply with economic theories. Therefore, we conduct an incentive-based economic experiment with 107 forestry decision makers in order to analyze this research question. This approach is well-established in the field of behavioral economics since it has the advantage of analyzing certain economic parameters isolated from further aspects of the decision situation. We use the Faustmann–Pressler–Ohlin theorem and a real options approach as normative benchmarks. The present study provides evidence that none of the examined theories fully comply with the observed behavior. However, the harvesting behavior coincides significantly more with the real options theory than with the Faustmann–Pressler–Ohlin theorem. It can thus be stated that a higher degree of education leads to decisions that are more in accordance with the real options theory.

DOI:10.1016/j.jfe.2016.01.004